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A New Year, a New Vision and a New Practice that is “Beyond Reproach”
By Columnist David B. Loeper, CIMA®, CIMC®

Recently, I spoke at an industry conference and had the opportunity to sit in on two of the other presentations. To me, the contrast between the two was striking even though on the surface they appeared similar. Both presenters spoke on the topic of asset allocation. Both had assembled a significant amount of data. Both presenters were credentialed and had significant experience. I’m suspect that the many audience participants would weigh the two presentations nearly equally if measured by the value of their respective content. Yet to me there was a stark contrast between them. I could identify integrity in one presentation and conflicts of interest in the other. These differences were not blaring out anywhere in the analysis they presented but were instead somewhat more subtle, yet very telling if one is concerned about integrity. What was the difference?

The Ethical Presenter

The presenter with integrity did for the audience what they would have to do for themselves with the content of the other presenter. He not only disclosed the pitfalls of the approach he was presenting, he highlighted them. On one slide, he actually showed how his approach would produce an inferior result in three out of four kinds of market environments. This was the price in his approach to buy the benefit it could deliver. The way he answered questions from the audience consistently carried the theme of putting both the pros and cons out on the table. When valid objections were posed by audience members, instead of overcoming them he acknowledged them and reinforced them. In fact, he seemed to almost labor to make sure that no one would walk away from his presentation with any erroneous assumptions about his content. He wanted to make sure the audience clearly understood the pitfalls and did not over promise the benefits.

The Unethical Presenter

The other presenter in contrast presented his solution in a manner designed to highlight the benefits with little discussion of potential pitfalls. He left it up to the audience participants to figure out on their own the potential problems that he neglected to highlight. When valid objections were posed, he attempted to overcome them by redirecting the conversation toward the benefits he was claiming, citing an opposing data point or making an excuse. His presentation was a misleading sales pitch packaged in a shroud of “research.” He wanted to get the audience to believe him and do his best to avoid having them understand the pitfalls of his approach.

So, one might think that it is easy to discern the difference between objective integrity and conflicted sales spin in a presentation, article, or whitepaper. If a presentation highlights problems and pitfalls, emphasizes uncertainties or demonstrates benefits of opposing viewpoints, it is easy to conclude the presenter is fair and objective. Unfortunately, this isn’t necessarily the case because this technique of self deprecation can be a more sinister means of misleading people from true understanding. On my flight back from the conference I found an example of this in reading a whitepaper on retirement income planning that was published by an insurance company.

The Sinister “Researcher”

The paper covered various approaches to produce an inflation adjusted lifetime income. I have to admit, the author of the paper had me fooled at first. For every strategy he analyzed there were pros and cons cited. Example after example showed how his company’s annuity products were likely to be economically detrimental in the cases he analyzed even if the client lived to age 95, well beyond normal mortality. I actually thought to myself, oh my gosh, here is an insurance company that is taking the high road in finally disclosing there is a price to those guarantees and that is the source of the profits their actuaries build into the design of every product they sell. Alas, my hope was shattered. A not so obvious trick was hidden in the assumptions that forced an outcome to make it appear as though the economic drain of their products would suddenly evaporate as long as one purchased enough of them. I would be willing to bet that 95% or more of the readers of this paper would miss what trickery was hidden in the assumptions that were designed to mislead and evade understanding.

The presenter at the conference that failed to disclose pitfalls fostered misunderstanding by an act of omission. He never explicitly represented that he was attempting to be objective. Everyone in the audience knew that he had a product to sell and he was going to highlight the benefits. The audience knew they needed to keep their guard up, be skeptical and hunt for what he omitted. This does not mean it was an ethical presentation because it is not ethical to omit information needed to make an informed decision whether it is omitted by intentional evasion or mere incompetence. It just means he didn’t attempt to compound his acts of omission by intentionally trying to package his biased content in a way designed to mislead people into thinking it was objective.

The author of the whitepaper fostered misunderstanding by an act of commission. He consciously attempted to make it appear as though he was unbiased and objective. He accurately stated and disclosed assumptions that were used in his “analysis” and designed these assumptions in a manner to give an impression of objectivity to mislead the reader. I worry about the people whose lifestyle will be harmed by the misleading conclusions of this paper. I also worry about the advisors who this author is also misleading that want to do the right thing for their clients and genuinely believe that the twisted objectivity the author attempted to convey was real instead of contrived.

Acts of omission or commission that result in misunderstanding are not ethical.
It is that simple.

Hiding information that is needed to make an objective informed decision is an attempt to deceive. Not doing your homework and blindly trusting misinformation is negligence that results in committing acts of omission. Finally, presenting information in a manner intentionally designed to mislead people into thinking it is objective when it is not, creates misunderstanding by an act of commission.

Your New Year’s Resolution:  To Build a Practice that is “Beyond Reproach”

Last month I outlined a grander vision of what your career could be like if you were willing to change to the highest ethical standards of true integrity. This change will not be easy and over the coming months I will demonstrate to you the specific things you will need to do to meet this goal. But, the basic premise of building such a practice starts with the one simple concept outlined in this month’s column…that is, delivering objective information to facilitate true understanding. Are you willing to make the following resolution for the New Year?

I hereby resolve to build a practice that is beyond reproach and further resolve that in all communications with clients that I will not:

• Omit any information that would be needed to make an informed objective decision
• Overcome valid objections and I will instead acknowledge and reinforce their validity
• Misrepresent biased information, research or analysis as being objective
• Present the benefits of any approach without fully understanding and clearly disclosing the price, pitfalls, or uncertainties of the benefits hoped to be obtained

Like all New Year’s resolutions, it is far easier to make the resolution than it is to actually change your behavior and stick to it. But making this resolution is the first step in meeting that grander vision of building a practice that is “Beyond Reproach.”

David B. Loeper is the CEO of Financeware, Inc. which does business as Wealthcare Capital Management. An SEC Registered Investment Adviser with nearly 25 years experience, Loeper has appeared on CNBC and has been a featured contributor on Bloomberg TV and CNN. Loeper joined Wheat First Securities as vice president of investment consulting in 1988, where he served for 10 years. He was promoted to managing director of investment consulting, and then eventually to managing director of strategic planning for the retail brokerage division. He left his position at Wheat First Securities in 1999 to found Financeware.
Active in industry associations throughout his career, Loeper has been a member of the Investment Management Consultants Association (IMCA) for over 20 years, serving on the advisory council for more than 5 years, most recently as chairman. Loeper was also appointed by the governor of Virginia to serve on the Investment Advisory Committee of the nearly $30 billion Virginia Retirement System. He received his CIMA® designation in 1990 by completing a program offered through Wharton Business School, in conjunction with IMCA. Drawing on years of experience in financial services including serving as a fiduciary for all types of ERISA plans, Loeper has authored numerous whitepapers and books including the top selling book, Stop the 401k  Rip-off! as well as  The Four Pillars of Retirement Plans, Stop the Retirement Rip-off and Stop the Investing Rip-off. www.financeware.com